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Infosys story part 1: Internal issues not tough market or visa row, may dwindle it down !

Everyday, Infosys is in news – rather negatively! What has triggered with missing revenue guidance, is not stopping for a moment. Be it Projecting its single digit growth, visa row and related legal suites, early signs of challenges in recruitment and consistent criticizing by financial or industry analysts (and its heavy reporting) – the list simply is never ending.

To assess where Infosys is heading, I tried to analyze the situation from multiple perspective. We surveyed 82 Infosys clients including 40+ strategic accounts ( We even spoke to over 60 TCS, 50+ Wipro and 40+ Wipro clients) in our latest survey of over 300 offshore clients. We also spoke to over two dozen current and ex-employees (mostly senior and/or long term), debated with select financial analysts and industry experts. Here are few key pointers that this exhaustive study has thrown up:

Clients are sympathetic about Infosys, but now have some concerns. Infosys is one of very few Indian firms who traditionally enjoyed huge client confidence. Several of them literally, take pride in being Infosys clients. Even today, we find Infosys, compared to its several peers, enjoys a special position. However, our latest study as well as our earlier client studies show growing chorus of client dissatisfaction. Pricing rigidity, lack of flexibility, difficult contract discussions, smaller teams (than what client expects) managing accounts, limited investments in sales and marketing, lack of proactive account mining and frequent changes in account teams are some of common issues we heard.

Clients are waiting for Infosys’ clarifications on carpet bombing by media and competition. Nearly half clients we spoke to claimed, everyday they are bombarded by negative news about Infosys. They know their seniors and colleagues from commercial functions (sourcing/procurement/finance) also get same dope. But they find very less information from Infosys side. Several clients claimed, they suggested their account managers to feed them with appropriate information so clients can support their case. However, many clients told us, they could not get much data from Infosys; instead got stereotypical replies like, we don’t comment on media stories, visa matter is in courts so we cannot comment, and so on.

Our inquiries indicate Infosys staff getting de-motivated and frustrated. One employee told us that every discussion these days – whether in family, in social setting, and even in week end parties – essentially starts with “what’s next problem at Infosys”. Several others expressed similar views and added; every time they face such conversation or read a media story they wonder where company is heading. Our interactions have also indicated that employee noise is growing in several internal platforms. Long term employees confessed they still don’t see light at the end of tunnel. While I must say that this point is based on 32 interactions and one can argue that it is just a sample size. But almost all these interactions showed uniformity in replies and raised common points. Further, if we dovetail this early trend with other emerging trend of Infosys, no more enjoying coveted position in recruitment (especially campus), then it surely indicate signs of what is coming.

Why is this happening and who’s responsible? That is a tough call, but let me say what is not responsible for most of these issues:

Surely not economy and squeezing IT budgets. Clients still like Infosys and are open to give more business if, they can address their new concerns and showcase client facing investments

Not visa row (at least as yet) that is catching media attention. Clients are indeed curious to know what’s happening on legal front and how it is evolving. At least at this stage, we did not find any clear trend that indicates clients divorcing from Infosys or even thinking on those lines. Yes, they are looking for more information to come (which is not happening) from Infosys so they are aware.

Not even competition. Our research interactions still show that clients are not playing into competitors’ hands. They want to give opportunity to Infosys to explain their side and continue showing value and delivery high quality service.

I think most challenges facing Infosys today are internal. Be it continued organizational changes, lower pace of adapting to changing market reality and expectations, or loss of some of senior and old-time executives. We believe that this saga is still on… Expect some high profile exits, rise in attrition and couple of more rounds of org restructuring, and growing client concerns. Let’s hope Infosys fixes these loopholes quickly and permanently. Remember, damage to Infosys brand for wrong reasons shadows overall Indian outsourcing story.

2 thoughts on “Infosys story part 1: Internal issues not tough market or visa row, may dwindle it down !”

Hi Basab,Firstly, sorry about the long reply.While I think a lot of opinions that you have usaluly are well thought out, I think in this case, the argument you make seems to be myopic to me. I work in the captive unit of an MNC firm and I do not believe that the comments you make are completely valid.1. They don’t have and don’t realize the need for stronger life cycle processes for distributed development. I believe each of the IT firms (the Infys and the MNCs) had to also go through this MoC/lead time to master distributed development and finally learnt the model. Given that the middle mgmt in these captives are usaluly sourced from the IT firms, I do not think it will be that difficult to set up processes2. Organization models put all decision making in headquarters and none in the captive.- Would agree with this one but I think India is becoming more important progressively. Again, its a matter of time but I dont see why strategic decision making should be based out of the captive. TCS does its strategy out of Bombay for any of the DC.3. Dull, repetitive tasks like testing or support that nobody in headquarters wants to do are the first to be shipped out.- Agree completely4. Average experience levels in captives will be lower. Just the nature of the Indian market. Companies won’t invest in adequate training and then arrive at incorrect conclusions that employees in the captive don’t “get” the business side of things.- I think any ODC would have gone through this learning curve and I dont see why a Captive unit would be different.In fact, I would think the Captive will get to it faster than a vendor doing it. GE has been running the business side of IT from its Bangalore center for a long time now.5. Small things matter. Like when conference calls are scheduled. If they are always during work hours at headquarters but outside of work hours in Bangalore, there’s a sign of dysfunction right there.- Absolutely no difference from a vendor infact i would say, since you are colleagues and not external vendors’, there might be a better chance of more suitable timings.6. Headcount at the captive keeps growing, but the organization model is such that headcount at headquarters never comes down. The business case goes phut.- I dont think firms have a choice other than to reduce headcount at HQ. We may be at the beginning of the curve but we are starting to see some real fundamental moves in that direction.Even other aspects about possible career progression etc, as an MNC, most of them have developed fairly sophisticated career frameworks which are more global’ in nature. While it may take a few years to seamlessly integrate global opportunities with India, I think all the signs are there. I think you should not underestimate the possibility of creating a global career path (and also the possibility of moving to the business side of it). One other thing that you have not mentioned is, the work-life balance and culture is usaluly considered to be better in an MNC environment than in Indian firms and I think these are slowly becoming more important.

HiA few observations on the citapves of product companies1. The recruitment standards of product citapves is much more stringent than the companies servicing the product outsourcing market. This, along with the general manpower crunch makes it difficult for the captive to sclae. The Services companies have learned to manage with whatever resources are available. Most citapves fail to meet the growth projections that are made intially. In fact, once the head of one of the biggest companies suggested that we (the services company) get into an arangement where they will reccomend a candidate who we hire and contract back to them. This was because they felt that most of the candidtes are good enough to do the project but not good enough to be recruited by them. 2. Sometimes, in small product companies, the decision to set up a captive is made to accomadate the desire of an influential member of the product team to return back to the mother land, as opposed to a sound business strategy. While there is nothing wrong with this, a lot of the decisions made are not necessarily the best ones (where to locate the captive, what products/activities to send offshore etc.) This again results in the captive not fulfilling the original promise.With the kind of attrition and manpower crunch prevalent in India, it is very difficult to sustain a small captive that is an add-on to the main product team. In fact, the companies that look at the captive as the primary product team, have a better chance of succeeding.A few years ago when BOT clauses were becoming the norm for most procudt development outsourcing contracts, we had started tracking REVERSE BOT of failed citapves as a good opportunity.